AMD details 2009 restructuring costs; may be more pain ahead

AMD has given more guidance on how it plans to cut costs in 2009. No new …

Back in December, prior to the AMD/GlobalFoundries split, AMD filed an 8-K report with the SEC detailing its plans to reduce corporate overhead. As part of that plan, AMD cut its number of employees by 600, took a further writedown against ATI's goodwill, and estimated that it would record a $70 million restructuring charge in the fourth quarter of 2008. AMD also stated that it would act to further reduce costs in the first quarter 2009, but that it could not estimate what those costs would be.

In an amended SEC 8-K filing this week, AMD stated that it is now capable of estimating those costs, and will record restructuring expenses of "approximately $50 million" in the first quarter of this year. The cash outflow breaks down into a variety of categories, with almost half of it going to pay severance and employee benefits. Presumably these are the severance charges related to the 600 further employees AMD cut at the end of the last quarter; the company has not yet announced another round of firings.

AMD will pay $45 million of the $50 million in cash expenditures, but implies that it's still not done with those cost-reducing measures. "Further cost reduction actions will result in additional charges during the remainder of fiscal 2009...which the Company expects will consist of facility site consolidations or closures." If I had to bet, I'd bet more on consolidation than outright closure. AMD and GlobalFoundries may be two companies on paper, but the actual, physical act of splitting the two structures apart and housing each almost certainly leaves a certain amount of unused space that can be redeployed or retired. AMD could theoretically close some of the development facilities it has opened in developing countries, but the cost of operating the AMD India Engineering Centre (IEC) probably isn't all that much given the economic differences between the United States and India.

Whatever AMD ends up doing, the company intends to do it quickly. The CPU design firm gives guidance in the same 8-K filing that it "expects that the completion date for the December 2008 Restructuring Plan will be during the fourth quarter of fiscal 2009." The goal for 2010 is to present a leaner, meaner AMD without cutting costs to the point where the company can no longer compete. The recession makes any plan a gamble; Advanced Micro Devices is searching for the future waterline of a shrinking lake.